On Tuesday, Deutsche Telekom AG (ETR:DTEGn) (DTE:GR) (OTC: DTEGY) stock was downgraded from Buy to Neutral by UBS, with the price target maintained at €28.00.
The firm noted that while Deutsche Telekom (OTC:DTEGY) is seen as a quality defensive growth stock with over 10% per annum earnings per share growth and solid shareholder returns exceeding 4.9% per annum, the decision to downgrade comes after the stock's significant appreciation over the past year and the last four years.
The stock has experienced a 30% increase over the past 12 months and has doubled in value in the past four years. UBS attributes this performance to several factors, including cash upstreaming from T-Mobile US (NASDAQ:TMUS), which has led to buybacks at the Deutsche Telekom level, a recovery in shares post a placing by the German government in June, and a re-rating of the T-Mobile US share price. Additionally, a broader sector re-rating has also played a role in Deutsche Telekom's stock performance.
Despite the downgrade, there have been no changes to UBS's estimates for Deutsche Telekom, and the price target remains at €28.00. Looking ahead, UBS suggests that investor attention will likely turn to the upcoming Capital Markets Days for T-Mobile US and Deutsche Telekom, scheduled for September 18 and October 10, respectively.
Investors will also be keen to observe the actions of the German government, which holds a 27.8% stake, and SoftBank (TYO:9984), with a 4.5% stake, in Deutsche Telekom.
In other recent news, T-Mobile has been hit with a record $60 million fine by the Committee on Foreign Investment in the United States (CFIUS) for failing to prevent and report breaches of sensitive data. This fine, the largest ever issued by CFIUS, is related to T-Mobile's non-compliance with a mitigation agreement established during its $23 billion acquisition of Sprint Corp in 2020. T-Mobile, primarily owned by Deutsche Telekom, experienced these data breaches in 2020 and 2021.
In a separate development, Deutsche Telekom AG reported strong growth for the second quarter and first half of 2024. The company's CEO, Tim Höttges, highlighted a 4% organic service revenue growth and 6% organic EBITDA growth in Q2, along with a 26% increase in operating free cash flow and a 23% rise in adjusted earnings per share. Additionally, Deutsche Telekom raised its 2024 free cash flow guidance to approximately €19 billion and remains confident in its full-year EBITDA and free cash flow forecasts.
These recent developments reflect the dynamic nature of the telecom industry and the ongoing efforts of companies like T-Mobile and Deutsche Telekom to navigate regulatory challenges while continuing to deliver strong financial performances.
InvestingPro Insights
As Deutsche Telekom AG (DTEGY) navigates the market following its recent downgrade by UBS, investors seeking additional context can find valuable insights through real-time data and expert analysis. According to InvestingPro data, Deutsche Telekom has a market capitalization of $141.39 billion and a Price/Earnings (P/E) ratio of 26.07, which adjusts to 23.54 when considering the last twelve months as of Q2 2024. This suggests that while the company may be trading at a higher multiple, its earnings performance has been solid.
InvestingPro Tips highlight that Deutsche Telekom has raised its dividend for 3 consecutive years and has maintained dividend payments for 20 consecutive years, indicating a strong commitment to returning value to shareholders. Furthermore, with a current dividend yield of 2.73%, the company remains an attractive option for income-focused investors. It's also worth noting that analysts predict the company will be profitable this year, a sentiment supported by the company's positive return on assets of 3.23% over the last twelve months as of Q2 2024.
While the stock is trading near its 52-week high, with a price 98.87% of that peak, and the Relative Strength Index (RSI) suggests it is in overbought territory, Deutsche Telekom's stock generally trades with low price volatility, which could appeal to risk-averse investors. For those interested in further analysis and additional InvestingPro Tips, there are over 10 more tips available, providing a comprehensive overview of Deutsche Telekom's financial health and market position.
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